If you’re an online retailer looking to use dropshipping, you’ll need to make sure you’ve ticked all the boxes from a tax and legal perspective. One of the key points to check is your business structure, including whether you have an Australian Business Number (ABN).
In a nutshell, an ABN is an 11-digit number that identifies your business to the government (and the business community)¹.
In this guide, we’ll look at whether or not you need an ABN for dropshipping, and how to get an ABN should it be required.
While you’re setting up dropshipping for your retail business, it could also be a good time to think about how you’ll pay your suppliers. For example, get a free Wise Business account and you can send money all over the world for low fees – and you’ll also be guaranteed the real exchange rate.
But more on this later. Let’s start with the basics on how dropshipping works.
Dropshipping is where an online retailer purchases stock from a third-party to fulfil orders as they come in. The retailer doesn’t actually own the stock itself. Instead, it will take advantage of the huge inventory of a wholesaler or manufacturer to sell products to its customers.
Here’s how it works. When a retailer sells a product to a customer, it will then purchase the item from a third-party. But instead of having to wait for the item to be shipped to the retailer, before then shipping it to the customer – the item is sent – or ‘dropshipped’ - directly from the wholesaler to the customer.
The main benefit of using dropshipping is that you can get started as an online retailer without needing to spend thousands of dollars on inventory. You don’t need to manufacture products yourself, or find acres of space to store your inventory. You’ll need less capital upfront, but can start selling immediately.
There are of course downsides³ to consider too. It can quickly become quite complicated to set up dropshipping, especially if you have a number of different suppliers.
While you won’t be taking on the risk of stocking a large inventory, you also won’t have full control over defective supplies or shipping delays. But you will have to assume full responsibility for customer service, which means placating annoyed customers if something goes wrong with shipping – even when it’s not your fault.
You’ll also have to hand over a chunk of your profit to the dropshipping supplier.
Whether or not you need an ABN for dropshipping all depends on whether you’re selling products online as a business, or just a hobby.
It’s most likely to be a business venture if you’re considering using dropshipping. Most people who are selling items online to clear out clutter or make some extra spending money would handle the shipping themselves.
If you’re running an online retail business in Australia, it’s a legal requirement to register for an ABN⁴.
There are other reasons too why getting an ABN is a good idea. Firstly, it’ll mean you can get an Australian domain name for your retail website. You’ll also find that many dropshipping suppliers simply don’t work with businesses which don’t have an ABN.
Don’t have an ABN, but need one to legally run your online retail business and work with dropshipping suppliers? The good news is that it’s completely free to register for an ABN, plus you can do it quickly and easily online.
Simply follow these steps:
Head to https://www.business.gov.au/
Make sure you have proof of your identity and details of your business activities (including your colleagues and associates). If it’s a new enterprise, you’ll also need to have decided on a business structure.⁵
Complete all stages of the online application form and submit.
As long as you’ve provided all the required information and there are no issues with your application, you should get your ABN immediately after completing the application form.⁶
In the case that your identity can’t be confirmed or you’ve missed out some important information, the Australian Taxation Office (ATO) will review your application within 20 business days.⁷
And that’s pretty much it. The process is designed to be simple and quick, so there’s no reason not to put an application in and get an ABN for your business.
Now that you’re all set up with an ABN, you can start to link up with dropshipping suppliers and get your online retail business off the ground. But don’t forget that you’ll also need to find the most cost-effective ways to pay suppliers – as well as getting paid by your customers.
Open a borderless business account with Wise and you’ll be able to pay global suppliers quickly and securely. Fees are low and transparent, with no hidden costs. You’ll get the real, mid-market exchange rate on every payment you send and receive, with no mark-up or margin added on top.
There’s even a linked Wise Platinum Business Mastercard, so you can spend like a local wherever you are in the world. It’s the easier, cheaper way to cover business expenses overseas, whether treating a client to lunch or placing a new wholesale order for your eCommerce site.
So, that’s pretty much everything you need to know about ABNs and dropshipping.
So, if you’ve got big plans for an online retail business and think dropshipping is the most convenient, cost-effective option for you – it’s time to apply for an ABN.
Unlike some of the legal and tax-related hoops you need to jump through as a business owner, getting an ABN is blessedly straightforward.
Sources checked on 5-October 2020.
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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